Tuesday, August 9, 2022
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Centre frets as states borrow against future revenues, government assets

NEW DELHI: From collectorates and taluk offices to municipal parks, some states have resorted to raising loans from banks by offering sovereign assets as a security or escrowing their future revenues, prompting the Centre to raise the red flag, especially in the wake of the Lanka crisis.
Between 2019-20 and 2020-21 at least five states – Andhra Pradesh, UP, Punjab, MP and Himachal – escrowed future revenues, finance secretary TV Somanathan said in a presentation to chief secretaries last month. More states may have resorted to such means, but data was not immediately available, sources told TOI.
Escrow refers to giving charge of resources to a third party or banks till a loan or a liability is cleared. On June 20, TOI was the first to report that the Centre has flagged its concerns over high debt levels in some states.
The worry stems from states offering securities to raise loans when they do not have revenue streams, something that the Comptroller & Auditor General has also frowned upon in the past.
With spending on the rise, experts say, states are increasingly resorting to off-Budget borrowings and pledging their revenue streams or sovereign assets.
While the Centre itself had large off-Budget borrowings, for food subsidy, funding Air India’s losses and oil bonds, it has sought to clear its books in recent years. At the same time it is pushing states to be more fiscally responsible, but is facing political resistance, as was the case on Tuesday when several opposition parties objected to economic affairs secretary Ajay Seth’s presentation at a meeting of political parties on the Lankan crisis.
Under current rules, the Centre allows states to borrow up to 3.5% of the gross state domestic product (GSDP), with another 0.5% permitted which are linked to power sector reforms.



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